Skills concerns cast a shadow over the industry outlook

Following growth of 9.5% in 2014, output in the construction industry is expected to grow by 4.9% in 2015, according to our latest summer forecast. In 2016, output is forecast to grow at 4.2%, surpassing pre-recession levels for the first time since the financial crisis. In the short-term, this growth is likely to benefit from activity in three key sectors; private housing, commercial and infrastructure. However, in the longer-term, in addition to these three sectors, activity will be supported by increasing work in schools and hospitals across the public sector. By the end of the forecast period, which runs until 2019, the sector is projected to be valued at £150.6 billion, providing the industry with an additional £26.9 billion of output in five years.

These forecasts may be bright but are not without downside risks. The main risk is the availability of skilled labour. Recent trade surveys have shown that nearly half of large contractors are experiencing difficulties recruiting onsite trades such as bricklayers, plasterers and carpenters. This mainly affects house building, but broadening growth will increase demand for skills in other sectors and put further pressure on the existing workforce within the industry. According to recent data from the ONS, the number of bricklayers in 2015 Q2 was 66,000, one third lower than in 2007 Q2. The number of plasterers for Q2 was 46,000, 23.3% lower than in 2007 Q2. For carpenters, a total of 245,000 was reported in Q2, 18.3% fewer than in 2007 Q2. Skills shortages are not limited to on-site trades, though. The number of production managers and directors in construction was 187,000, 27.2% fewer compared to 2007 Q2.

Given our forecast for output to surpass pre-recession levels, the construction workforce also needs to increase. Even after an increase of 49,000 workers in the last two years, there were 390,000 fewer workers in 2014 compared to its peak in 2008. In the short-term, while higher wages may attract labourers – from home and abroad – back into the British construction industry, managers who have migrated into other sectors because of a greater transferability of skills may be reluctant to return. Bricklayers can profit from the wage inflation owing to labour shortages in their field and we can import workers in the near-term, but is that sustainable over time? Furthermore, will a hike in wages be enough to attract back the missing middle managers?